Needham Conference - January 2020 Leading innovation from within
Introduction to IQE
IQE – the scaled global epitaxy leader Our Business Units Key Facts Wireless Headquartered in Cardiff, UK Epi wafers for handset and telecommunications infrastructure. Our Sites and 2019 Revenue £136 to 142m Substrates Technologies Photonics Wireless MOCVD Photonics MBE Epi wafers (lasers) for use in 3D sensing, fibre optic 650 staff across 9 global sites communications and military infra-red. Substrates for infra-red applications. P P Cardiff, UK (HQ) Where we operate P P Newport, UK P P Milton Keynes, UK Geographical Revenues P P Spokane, US Americas 60 % P P P Massachusetts, US P P P P Pennsylvania, US Asia 30 % P P N Carolina, US P P Taiwan P P P Singapore Europe 10 % USA Europe Taunton, MA Asia Greensboro, NC Newport, UK Bethlehem, PA Cardiff, UK à CSC Taiwan MOCVD = Metal Organic Chemical Vapour Disposition Spokane, WA Singapore à CSDC Milton Keynes, UK MBE = Molecular Beam Epitaxy 2
IQE is a materials specialist, supplying the entire market Agnostic to winners and losers at the Chip and OEM level Epitaxy process Substrate Wafer Production Chip Fabrication Device Manufacture 3
IQE operates across diverse markets There will be an inflection in demand for compound semiconductors driven by macro trends in the technology industry 5G infrastructure 5G handsets 3D sensing 3D sensing Lasers for in smartphones beyond the commercial smartphone applications • Next generation, • Facial recognition • Consumer devices • Next generation • Global roll out of high-efficiency lasers for fibre • ‘World facing’ • Commercial base stations and Power Amplifiers cameras optics (10G & 25G applications small cells DFBs, APDs and • Market entry into • Structured Light • LiDAR • GaN on SiC Switches and Filters PINs) and Time of Flight • GaN on Si (BAW and SAW) (ToF) • Military applications • Environmental and health monitoring 4
IQE’s Business Model is scaling for mass production High barriers to entry exist due to IQE’s IP Portfolio (both patents and know-how), lead times to create products and construct facilities and the process of customer qualification Delivering shareholder value Research New products Manufacturing Customer Mass & development capacity qualification production Expanding margins and cash generation 5
Business Update
Market Context IQE is well placed to adapt to Global supply chain shifts resulting from Geopolitical tensions Foresight Conservatism Anticipated disruption Adaptable Well positioned Expected weakness in Geopolitical tensions The speed of supply IQE’s global As the macro trends handset market in H1 have reduced volumes chain shifts from US to manufacturing of 5G and connected & created conservatism Asia has been rapid but footprint and position devices play out, IQE in supply chains highly disruptive in the as materials solutions remains uniquely short-term provider, supplying the placed to capitalise on whole market, mean an expanding market we are well placed to for compound adapt semiconductors 7
2019 represented a challenging market in an unprecedented geo-political context Progress has been made to ensure the business is well-positioned for future growth opportunities Newport Mega Foundry constructed and now in production for existing large OEM plus a major chip customer in Android supply chain. Ten tools installed, capacity for 100 tools. Capacity expansion completed in Taiwan to enable 40% higher volumes, ongoing qualifications with major Taiwanese foundries Closure of New Jersey (US) site and expansion of GaN capacity at Massachusetts (US) site Targeted cost reductions across the group completed Singapore JV (CSDC) bought back under 100% ownership to tackle Asian market opportunity and restructure cost base Credit facilities increased to £57m (year end net debt of £15-20m) 8
Revenue Evolution Current guidance for 2019 is £136m to £142m with return to growth expected in 2020 2019/20: Asian supply 2018: VCSEL GBP £’m chain shifts 2017: Initial inventory VCSEL ramp correction 142 Market opportunity growing 155 156 at 25-30% CAGR driven by 136 Stabilisation = 5G and Connected Devices 133 Moderate Growth macro trends 114 2015 2016 2017 2018 2019 2020 2021 2022 Return to Growth Drivers in 2020: • Wireless: US Chip Company volumes driven by 5G handset shipments; Expanding qualifications and volumes with Taiwanese foundries • Wireless: GaN on SiC volume increases for 5G infrastructure roll outs • Photonics: VCSEL market expansion (existing large OEM content increases; Android Time of Flight (ToF) adoption) • Photonics: Indium Phosphide opportunities in Asia (China 5G) 9
Capex H1 FY19 and Outlook Capex Cashflows £’m PPE Additions £’m 24.1 19.5 19.4 19.1 19 12.3 12.2 5.7 6.3 4.1 H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 H1 FY17 H2 FY17 H1 FY18 H2 FY18 H1 FY19 Cash used for capex Infrastructure expansion Intangible Capitalisation substantially complete • Current expectation for FY19 is at the low end • £5.7m intangibles capitalised in H1 FY19 of full year guidance of £30m to £40m • Newport Mega-Foundry has 10 tools installed ‒ £4.8m capitalised R&D with the next 10 cleanrooms nearing ‒ £0.9m purchase of intangible assets • Capex for 2020 is expected to step-down completion following the capacity expansion investment. • Full Year Guidance of £10-15m reiterated at Maintenance capex is in the region of single • Taiwan expansion has increased site capacity the half year digit millions. There is sufficient capacity in the by 40% group to underpin 2020 growth scenarios. The • Future tool capex to scale for volume is decision on investment in the next five G4 discretionary and linear with future revenue reactors for Newport will be made in 2020 and opportunity be based on projections for 2021 revenue. 10
Strategy and Technology Update
Leading innovation from within Satellite Office Industrial Energy Communications Communications Heating Generation 5G Small Cell LEDs Networks Smart Grids Connectivity 5G Base Stations Augmented Big Data Reality Personal WiFi Security Solar Energy AI Devices Compound semiconductors everywhere 3D Sensing High-Speed Sensing Data Centers Diagnostics Connected Vehicles Machine Vision Medical Imaging Electrification Portable Telehealth Healthcare Autonomous Driving Monitoring Robotics and Automation LiDAR 12
Major Growth Drivers for IQE Potential addressable market growth of 25-30% CAGR over next 5 years Next 18 months Next 2 to 3 years Long Term High Speed 5G Infrastructure Rollout: Environmental & LiDAR 5G Infrastructure Datacoms: Health Rollout: • GaN for mm Wave / small cell networks • Lasers for backhaul networks Monitoring • 10G & 25G DFBs • 5G Base Stations (Distributed Feedback • GaN on Si Lasers) • GaN on SiC • 10G & 25G APDs (Avalanche Photo Diodes) • PIN detectors 5G Handset Opportunity: • Filters and Switches (cREO) Asian Market 3D Sensing Connected Smart Grids Wireless Proliferation: Devices Demand: Android Market • (High/Mid end) • Power Amplifiers 3D Sensing Proliferation: World-facing camera • for handsets (ToF) Low end smartphone • Wearables / consumer devices • Commercial and industrial • applications Quasi Photonic Crystal for module • integration 13
3D Sensing Proliferation 14
The 3D Sensing Market is set for Exceptional Growth Next 18 months Next 3 to 5 Years 2019 o Cost reductions drive adoption in o One major OEM, all phones o Multiple OEMs with VCSELs even low-end smartphones o New OEMs, high-end in volume products phones o Android proliferation of 3D o Augmented reality applications drive adoption o 3DS for Proximity sensing Sensing o World Facing camera in o Adoption in world-facing o More devices using VCSELs o Higher power at safe wavelengths high-end Android camera o Automotive in cabin and o Security authentication standards drive adoption development of LIDAR 15
Timing has been hard to predict but there is consensus on a large market opportunity 16
IQE’s Mega-Foundry enables large-scale mass production of VCSEL’s, leveraging a long heritage 17
IQE Remains Number 1 in VCSELs IQE’s Market position is a result of o Reputation as the leading global supplier of advanced wafer products and material solutions o Superior product quality, uniformity and yield = superior reliability and economics o Established supply chain relationships o Unique IP and Know-how accumulated over 30 years o World-leading Research and Development capability o Commitment to scale and investment in capacity o Internal dual-source capability for certainty of supply 18
IQE has a roadmap to stay No.1 Increasing volume, lower Manufacturing Platform unit cost Larger Die Size, lower cost 150 200 300 Wafer Size per chip, opens up Si chip fab mm mm mm capacity Eye Safety, Higher Power for Emission Wavelength LIDAR Lower unit cost per device, Integration and higher share for IQE, expands Miniaturisation market opportunity 19
High Speed Datacoms 20
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